You know your time is valuable, but how much is it really worth? As you fume about a delayed plane, a late doctor, a long line, is it possible to quantify—to put a concrete number on—the time being wasted? To say not just, “My time is valuable!” but “That’s $123 of my time down the drain!”
It turns out the answer is yes. And to do so you only need to use one of the most basic principles of economics: opportunity cost.
I tell my micro students everything I teach them is important, but the truth is that some things are more useful than others, and opportunity cost is near the top. (Yes, I guess I waste some of their time. Let’s not quantify that.) Here’s the idea, in business school terms: Imagine you are thinking of opening a restaurant. You expect some revenues from the restaurant (I hope!). There are also some costs: You have to buy the food, pay the waiters, rent the building. But there is another cost: You’ll have to spend all of your time at the restaurant—you can’t have another job. This means giving up some earnings—whatever your salary would be at that other job. That amount? That’s the opportunity cost. When you think about whether it’s a good idea to open that restaurant, you must consider this cost, just as you consider the cost of the food.
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It’s not too hard to see how this applies in your life. How much is an hour of your time worth?
ReplyDeleteYou know your time is valuable, but how much is it really worth? As you fume about a delayed plane, a late doctor, a long line, is it possible to quantify—to put a concrete number on—the time being wasted? To say not just, “My time is valuable!” but “That’s $123 of my time down the drain!”
It turns out the answer is yes. And to do so you only need to use one of the most basic principles of economics: opportunity cost.
I tell my micro students everything I teach them is important, but the truth is that some things are more useful than others, and opportunity cost is near the top. (Yes, I guess I waste some of their time. Let’s not quantify that.) Here’s the idea, in business school terms: Imagine you are thinking of opening a restaurant. You expect some revenues from the restaurant (I hope!). There are also some costs: You have to buy the food, pay the waiters, rent the building. But there is another cost: You’ll have to spend all of your time at the restaurant—you can’t have another job. This means giving up some earnings—whatever your salary would be at that other job. That amount? That’s the opportunity cost. When you think about whether it’s a good idea to open that restaurant, you must consider this cost, just as you consider the cost of the food.
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It’s not too hard to see how this applies in your life. How much is an hour of your time worth?